To form a Florida LLC takes a few steps, but first let’s look at how LLC’s came about and what makes forming one such a benefit to entrepreneurs in Florida.
The concept of a Limited Liability Company (LLC) was introduced in 1977 by a Wyoming LLC Act legislated as a favor to an oil company. In 1980, IRS issued a “letter” ruling to a company that it would treat a Wyoming LLC as a partnership; however, the IRS then proposed regulations that would deny partnership tax status to an LLC if no partner bore personal liability leaving some ambiguity.
Fortunately, uncertainty over IRS tax treatment of an LLC ended in 1988 when the IRS definitively ruled that it would treat an LLC as a partnership. Today, LLC registrations substantially outnumber formation of corporations. People have been able to form a Florida LLC based on a similar Florida 1982 LLC Act.
What is an LLC?
An LLC is a legally defined unincorporated association and is not a corporation. An LLC has structures with characteristics of a sole proprietorship or partnership and characteristics of a corporation. Some have described an LLC as the best of a corporation combined with the best of a partnership.
LLC Liability and Taxation
LLC members enjoy the same full limited-liability protection as a shareholder in a corporation. Additionally, the LLC has a second layer of liability protection that protects the company from lawsuits incurred personally by you or any other member. Pass through income taxation is an advantage gained by the partnership structure. An LLC is treated by default as a pass-through entity. For an individual owner the LLC’s income or loss is reported on their return’s Schedule C.
For a multiple member LLC the default tax status is as a partnership. LLC income or loss is entered on IRS Form 1065. Each LLC member receives an annual Form K-1 that reports the member’s allocated share of any LLC income or loss. The LLC member reports this on their personal income tax return. An LLC may allocate gains, losses, credits or deductions on a basis other than percentage of member ownership if U.S. Treasury regulations are met.
Alternatively, single and multiple member LLCs may choose to file as a corporation, rather than as a partnership. An LLC may file as a regular C-corporation or as an S-corporation. Since a C-corporation is double taxed, only a substantial tax advantage would justify it. However, an LLC taxed as an S-corporation has been described as the ideal structure for a small business.
Form a Florida LLC
The steps necessary to form a Florida LLC are outlined on The Florida Department of State, Division of Corporations website. The site provides forms and directions to complete them on-line and then file for your LLC articles of organization. The first step is to choose a name for the LLC pursuant to Florida requirements. The name must indicate it is an LLC with either “LLC” or “limited liability company” in the name. The name must also be distinguishable from any entity on file with the Division of Corporations.
An operating agreement is not a statutory requirement to form a Florida LLC. However, for members of a multiple member LLC it is highly advisable to execute one. The laws for stock corporations have been developed over many years. These rules provide governance and protective provisions for shareholders and the corporation. Therefore, an LLC agreement should establish provisions for its operation. An agreement can define member capital contributions, allocations of profits/losses, company management, authorized signatures, meeting procedures and more.